Thursday 18 September 2014

Am I a middleman?

Phones4u a large mobile retail group in the UK, has just gone into administration. This is an example of the grim reality of the ruthlessness of our sub-culture in parts of our business world giving capitalism a very bad name. A man named John Caudwell builds up his retail business empire in selling mobile phones. He is a trader, a middleman or the in between guy. He started his career by selling cars. He gets good at it and sees the opportunity in mobile phones. So he becomes a bigger middleman or distributor in this case and makes the link between the product/supplier to the consumer.

He makes a success out of it creating employment and by clearly having some attributes. In 2006 he sees the end of the growth period and cashes in by selling his firm to a private equity firm. He makes €1.6 Billion and becomes Britain’s most successful entrepreneur. As a result more middlemen get involved in the strange shadowy world of trade and commerce. The Private Equity firm are another group of intermediaries except with MBA’s but this time with a different network and can link you to the lender and the investor. They often present themselves better, wearing smarter suits and talk with a little more know-how. They sit on asset classes consisting of debts and equity securities which imply they would be borrowing money from the banks (another intermediary) and may raise other funds from investors such as wealthy individuals or pension funds. It buys up the business and drives it forward. They are regularly accused fairly or unfairly of being ruthlessly focused on the bottom line as often they will cut costs or stream line the business. Mind you they would have little choice if their objective is to sell it off.

In this particular case of Phones4u, their suppliers Vodafone and EE were not willing to renew their contracts with the retailer/distributor or the middlemen. We don’t know why as yet and we may never know as these things can happen. Suddenly 5500 people, who know little better, wake up one morning and are asked not to go to work as their salaries cannot be guaranteed.

Is this is an example of classic ruthless capitalism at its best? Were all the middlemen charging too much squeezing a debt laden company for profit? Could it even be possible that the lenders knowingly were offloading the debt moving in for the kill before all hell would break lose?

Today accusations are thrown left, right and centre with no one accountable nor willing to accept responsibility including John Caudwell. Yes this is the world of intermediaries to intermediaries with very little control where you connect the rough with the smooth, the weak with the strong, the savvy with the naïve resulting into so much economic insecurity and mistrust. Yes this is the Wild West.

We’ve seen this all too often in our business world. There are plenty of losers and victims in this game. As so often the case it is the poorest. The workers, who need jobs to pay for food on the table and their bills. The consumer is another loser. The Pension fund (as investors) could also lose out as the shares go to dust. The integrity of our business and finance world loses. In fact all in all there are no winners.

Time MCG has already made the analogy that much of the blame and guilt from the economic crisis lies in the world of intermediaries where what, one has to distinguish between the real economy (good/services) and the financial economy, which merely intermediates. Any business which merely intermediates doesn't provide real value; they only take a cut of the real value at both ends. Sometimes there's a need for intermediation only if there's a proper market failure where supply and demand don't meet, but that's not always the case. Many of us are of course intermediaries that don't just include financiers, or banks they include also brokers, traders, head hunters, distributors, agents, and so on in the entire world of trade and commerce. One could say where does it end?

The down side of any intermediary business when on its own, it can become a very high risk business if it is driven by a person or a company who is purely bottom line driven and worse if the particular person is a short term thinker or even worse still, if your main supplier could cut you lose. The revenue is very commission, or percentage fee based. Intermediaries will often not own anything to protect themselves from litigation or if anything goes wrong and their contracts will fiercely reflect this. My word is my bond disappeared long ago.

The stamina entailed in some of these types who are pure fee earners is enormous for better or for worse and stress becomes very astute whilst one’s integrity can be pushed to way over the limits. When women enter the scene to have a crack and by getting their hands dirty, things can get ugly as this can be a man’s world of the quick buck mentality, the world of takers and of manipulation where mistrust becomes prevalent. If and when the risks get greater involving debt and a greater number of people as the company may grow and as the sums get bigger; it can affect or harm so many more people as we’ve seen in so many instances.

Today the Banks are beginning to understand this and are very apprehensive into who and how they lend and understandably so and are seeking change in their culture. The Banking Standards Review makes for some very interesting read. Our younger generation want not just a pay check but a purpose and want to enter into something more tangible or vocational in their careers as they get to analyse how the financial crisis came about. Some of us are not catered for wheeling and dealing, or feel very vulnerable amongst some of the takers and the sharks around us irrespective of the size of their balance books. The majority of us have a sense of humanity, this is why it is important that the change in culture is needed and to help those who are intermediating for the right reasons and with a tangible purpose, with as little debt as possible and at sensible prices, to bring us all into a more hopeful long term safer economic world. This may help re-instil the much needed trust and integrity. 

I know many middlemen who have become unhappy, lost or even bitter having not succeeded in pure monetary terms in this game of winners and losers. I know others who have succeeded yet their private lives are often shattered. In my case I had pulled out with no regret having already had my private life tarnished, and having seen too much of the rot. 

As for John Caudwell (worth $2.6 Billion) Did he make or invent something? He has already pledged half his wealth to charity before he dies. Is this a sign of his guilt? Frankly I have come to the conclusion that these are not the role models I aspire to be as these types are the products of the last lost decade, and neither are they an example of measuring our success and happiness in so as to safeguard a more secure future in our world of business trade and commerce.
 
Human dignity is a universal right for all
 

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